Yes, interest rates are up, and that hurts new home buyers and other borrowers.
Yes, short-term interest rates paid on your bank account are higher.
Yes, long-term interest rates paid on new bond investments are up, too.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Did you know that higher interest rates also increase the payments on new annuity contracts? Those higher payments raise another important question: Is this the best time to start, or add to, the annuity payment portion of your retirement income?
Dollar-and-cent impact of higher interest rates on annuity payments
The impact of higher interest rates on your annuity payments is often hidden from view, since insurance companies don’t publish them; rather, they are a component of the company’s internal pricing. (Go2Income is one of a few organizations that reverse-engineer the annuity payment industry to estimate those interest rates.) Let me just state that these rates are up significantly, and they vary by the type of annuity, when payments start and whether they are for life or not.
You can see below how different types of annuity payments, in different situations, compare today with what they were at the end of 2021.
If you’d like to get a quote for today’s annuity rates, you can use Go2Income’s annuity calculator.
How do higher payments flow through your plan for retirement income?
Annuities provide lifetime income, so depending on the number and type you consider in your plan, you could experience a significant increase in starting retirement income since 2021 of about 15%. All because interest rates are up.
Other reasons to add annuity payments
And, as part of our weekly survey of annuity rates completed on Nov. 2, we observed a 1% to 2% increase in the majority of cases. Of course, more income should be a key factor in your planning, but what else is important?
- Your percentage of safe income increases with annuity payments, particularly late in retirement
- You can reinvest your extra income in tax-favored accounts like a Roth IRA or use it to pay for your life insurance or long-term care insurance premiums.
- Annuity payments can continue for the life of a surviving spouse, or for a beneficiary, until your annuity premium has been paid
- And the safe income from annuities enables a higher allocation to equities in your portfolio
It adds up to having more control over your retirement for you and your family.
What about what’s happening in the world?
JPMorgan Chase CEO Jamie Dimon — “as close as Wall Street has to a statesman,” according to The New York Times — has described the current wars and economic situation as possibly “the most dangerous time the world has seen in decades.” However, even during the financial crises in the 1930s, highly rated U.S. life insurance companies met all their obligations. In addition, since the 1930s, there have been significant regulatory reforms, including the establishment of state insurance guaranty associations and stricter regulations on insurance company investments. That’s why we consider annuity payments as “safe income.”
Some advisers argue against annuities because you can theoretically make more money by investing in the stock market. They don’t seem to worry about down markets that might limit your income when you need it most, and they don’t mention taxes either.
What I say is, why not build a plan that integrates both investments and annuities?
Peace of mind
We can’t predict the markets or the peak of interest rates, we don’t know what catastrophe will happen next, and we certainly can’t predict exactly how long we will live. All we can assume is that our finances will need protection if we plan to enjoy a long and happy retirement. That’s why reliable, safe income is important.
You can test annuities for yourself and see how various amounts and types might work for you. Order a no-obligation plan from Go2Income to build a plan for retirement income that fits your specific needs.
related content
-
The Economic Impact of the US-China Trade WarThe Letter The US-China trade war will impact US consumers and business. The decoupling process could be messy.
-
Retire in Malta for Quiet Coastal PerfectionSeemingly remote yet easily accessible to other points in Europe, sunny Malta offers paths to citizenship and residency for families and retirees.
-
Will My Children Inherit Too Much?If you worry about how your children will handle an inheritance, you're not alone. Luckily, you have options — from lifetime gifting to trusts — that can help.
-
Charitable Giving Lessons From Netflix's 'Apple Cider Vinegar'Charity fraud is rife, and a Netflix series provides a timely warning about donating money to a good cause without looking into its background.
-
Four Takeaways From Filing Your Taxes to Boost Your Financial FutureNow that another tax season is in the rearview mirror for most of us, what lessons can you take from what you learned about your finances to plan for the future?
-
What Claims Adjusters Are Thinking vs What They're SayingAfter a natural disaster, few of us are at our best, but here's what to keep in mind when you're interacting with your insurance company's claims adjuster.
-
Looking to Make a Job Change? How to Stand Out Like a ProTo make a strong first impression in interviews or when networking, skip your job title and work history and use an opening gambit that highlights your talents.
-
First 100 Days: Trump's Impact on Your FinancesHere are some opportunities to consider regarding investing, interest rates and tax cuts as the financial landscape shifts under the new administration.
-
What Would Happen if You Put Your Tax Refund in an IRA?Not only could you get a tax break, but the compounding effect over 35 years could turn the average refund into nearly $14,000.
-
Children Can't Afford to Fly the Nest? Here's How to HelpThe high cost of living means more adult children are staying at home. Here are four ways to help financially so they can eventually spread their wings.
